Bank of Israel Holds Key Rate as Inflation Expected to Ease Further

The Bank of Israel left its benchmark interest rate unchanged at 0.1 percent on Monday, citing an easing of inflationary pressures that is likely to shift any rate increase into 2019.

All 13 economists polled by Reuters had forecast no change by the central bank in what was the final decision for Bank of Israel Governor Karnit Flug, whose five-year term ends next month.

If no replacement is in place by the next meeting on Nov. 26, Flug’s deputy, Nadine Baudot-Trajtenberg, will be interim governor.

“In the coming months, there is likely to be a transitory decline in the inflation rate to below the lower bound of the target range,” the central bank said in a statement.

Inflation eased to an annual rate of 1.2 percent in August from 1.4 percent in July, remaining within the government’s target of 1 to 3 percent a year.

In an updated forecast, the Bank of Israel’s economists estimated an inflation rate in 2018 of 0.8 percent — down from a prior projection of 1.2 percent — and rising to 1.5 percent in 2019.

As a result, the bank’s staff pushed back a forecast for a 15-basis-point increase in interest rates to 2019 from the fourth quarter. It still expects the rate to end next year at 0.5 percent, with a hike of 40 basis points.

Flug, speaking to reporters, referenced the postponement to next year but said the monetary policy committee was not committed to the forecast.